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Zacks Industry Outlook Highlights: Apple, Alphabet, Samsung, Alibaba, Paypal, Facebook and Twitter.

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For Immediate Release

Chicago, IL - October 23, 2017 - Today, Zacks Equity Research discusses the eCommerce, including Apple , Alphabet , Samsung , Alibaba , Paypal, Facebook and Twitter.

Industry: eCommerce

Link: https://www.zacks.com/commentary/132998/ecommerce-looking-for-another-strong-holiday-season

The earnings picture for the Business Services group is better than broader market. In Therefore the Zacks Industry Rank is a good indicator of investment opportunities within an industry at any given time. Moreover, because stocks in the same X industry have certain common positive or negative factors affecting them, it has been observed that there is some positive correlation between them.

As depicted above, the Internet-supported buying and selling process includes four Zacks categorized segments, i.e. Internet - Commerce , Internet - Services and Internet Services - Delivery and Internet - Software/Services .

In the last six months, the Internet - Commerce segment outperformed the S&P 500 by a wide margin. The market appreciated 23.1% during the period, compared to the S&P 500's 8.8%. It also appreciated 51.7% year to date compared to just 14.2% for the S&P 500.

Revenue growth over the past year (ending June 2017 when results were last reported) was 34.9%. EPS before non-recurring items was up 6.3% on a more or less consistent share count. Forward earnings estimates are showing little appreciation, however, indicating that the industry is currently in investment mode.

The Internet - Services segment hasn't done quite as well, having grown 19.7% in the last six months and 27.8% year to date.

The business has a stronger margin profile, with revenue growth of 22.0% over the past year, EPS decline of around 11.8% on a share count that dropped 3.9%. Forward earnings estimates for the December quarter and fiscal years 2017 and 2018 are all trending down. It is apparent that the industry is seeing significant investment, which is why the high revenue growth is not dropping to the bottom line.

The Internet Services - Delivery segment has been the most sluggish, growing 19.6% in the last six months and just 2.1% year to date.

Revenue growth of 32.9% brought the industry back to profits despite a modest increase in the share count. Op-ex and interest expense remain high, impacting the EPS before non-recurring items. The debt level has shot up with no positive impact on the cash position. On the other hand, rising intangibles could indicate industry consolidation but increase risk. The debt-to-total capitalization ratio remains manageable in the 43-44% range with the current ratio being maintained above unity.

The Internet Software/Services segment is up 7.5% in the last six months and 29.7% year to date.

Revenue grew 16.5% off a much smaller base with EPS before non-recurring items growing 11.8% on a slightly lower share count. Still, there are opportunities here that can be exploited.

Market Trends

The ecommerce marketplace is influenced by both buyers and sellers. Moreover there are multiple trends, both big and small, and old and emerging, that are always in play. So it helps to take a quick look at what's going on-

Buyer Trends & Preferences

  • Mobile, Wearables : These remain as important as ever as users are increasingly accustomed to anytime anywhere shopping. The online store never closes, nor does the online payments machinery. Even brick-and-mortar sales are supported by mobile apps that increase awareness of products and push promos at opportune moments. Payments tech from Apple , Alphabet , Samsung , Alibaba , Paypal and others help the electronic transfer of funds to stores. eMarketer estimates that smartphones will remain a huge driver, growing to 50% of mobile commerce in 2017 and 53.5% by 2020. Larger mobile screen sizes, new categories (cars, grocery, luxury that were earlier restricted to offline purchase) and greater comfort in using online payment systems are the main drivers.
  • Social Networking : The traditional buying experience often involves friends or family getting together to look through merchandise and select after much discussion. The online experience has been more restrictive in this respect. Despite the fact that personal recommendations and comparison shopping have been around for a while, these are helpful in making a selection, but don't make buying a collaborative exercise. So the shopping experience has been more of a chore than fun. Once the novelty of doing things online wears off or for those who have been doing it online from the get-go, there will be a natural tendency to start looking for more, so this is where social networks like Facebook and Twitter for example will start playing a bigger role. Others like Pinterest are already travelling this path.

  • Voice Search : Merkle's Digital Marketing Report for the first quarter indicates that Google AdWords increased 19% sequentially and 21% year over year in the first quarter of 2017 with product listing ads being one of the hottest trends. Product listing ads (PLAs) accounted for more than half of retail search ad clicks, growing 48% sequentially. Spending on Google Shopping increased 32% year over year. The continued popularity of mobile search helped Google. Google has said that 20% of searches through its mobile app and Android devices are voice searches. Therefore, it's clear that voice search is no longer a novelty but an emerging trend for shoppers.

  • Geography Isn't A Barrier Any More : These days, if people want to buy something they don't get at the retail store, the first thing they do is check online (or they might check online first and decide their point of pickup accordingly). So the world is getting ever smaller as shoppers see local, state, national and international barriers melt away. Satisfaction of course leads to higher expectations.

According to Frost & Sullivan, Southeast Asia (only Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) is poised to become one of the world's fastest-growing regions for e-commerce revenues, growing from around $11 billion in 2015 to more than $25 billion by 2020.

According to Forrester research, the five key Asia/Pacific markets of China, Japan, South Korea, India and Australia will almost double from $733 billion last year to $1.4 trillion in 2020. Size and population density in China and India make them very important markets. So let's just touch upon prospects in the Chinese and Indian markets since they are on a very strong growth trajectory.

China

According to Forrester, China will remain the biggest ecommerce market in the next few years generating 9X the size of the Japanese market and 17X the size of the South Korean market by 2020. eMarketer estimates that ecommerce will be 23.1% of total retail sales in China, growing to 40.8% of total sales by 2021. More than 75% of these sales will be through mobile devices by 2021.

With the digital revolution in China, many Chinese have multiple devices they use to research a product or shop on. Devices will take a new turn this year as virtual reality (VR) starts playing a bigger role taking consumers from the "VR café" experience they enjoyed in 2016 to devices enabling the experience. eMarketer quotes a GfK forecast that retail sales through virtual reality (VR) devices in China will grow from RMB 650 million in 2016 to RMB 1.6 billion in 2017. Moreover, all the big ecommerce companies like Alibaba, Tencent and LeEco will continue to invest heavily in VR this year.

Cross-border trade is another driver, as Chinese youngsters are extremely brand conscious and like to buy foreign goods, especially if they're from the U.S., South Korea or Japan and especially in categories like food, dairy, personal care and beauty. But local brands are increasingly capturing mind share, especially in electronics and mobile phones. The Chinese Ministry of Commerce says that cross-border transaction value will make up 20% of total Chinese foreign business and continue to grow at over 30% a year.

The Ministry also sees a growing number of Tier 2 and Tier 3 cities coming online with only 10.6 million of the estimated 159.9 million new users between 2015 and 2018 coming from Tier 1 cities.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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